Soldato
- Joined
- 14 Jul 2005
- Posts
- 9,552
- Location
- Birmingham
Worst offenders for what? Severn Trent, United Utilities and South West are the only remaining listed companies and don't have any financing or gearing problems.
plan for collapse of Thames Water
- Thread starter Mrwong
- Start date
Worst offenders for what? Severn Trent, United Utilities and South West are the only remaining listed companies and don't have any financing or gearing problems.
They are all highly geared and increasing dividends at the same time. UU among the worst for discharges etc. The structure of being listed or not doesn't materially change the argument here.
Soldato
- Joined
- 14 Jul 2005
- Posts
- 9,552
- Location
- Birmingham
They all operate in the same regulatory environment so yes there is a lot of similarity, but...
UK Water Utilities: Why do we invest in one? | Fidante
The environmental failures of water utilities across the UK and the financial failure of Thames Water, has rightly led to increased scrutiny of the entire water sector. The sector was initially privatised by the Thatcher government in the late 1980’s, and Thames Water, now on the brink of going...
So in this analysis they clearly do see a difference in the financial stability and performance of the listed compared to the unlisted.
Yes they all pay dividends - this in itself isn't an issue, its reasonable for an equity investor to earn returns on their investment. The issue has been with those companies gearing up specifically to pay dividends whilst underperforming on performance, and sending the company in question into meltdown.
The issue with sewerage spills is affecting all companies, its more to do with a lack of planning and regulatory oversight over the past 30 years than it is specifically to do with investor behaviour.
I don't think people would agree they are vastly different private vs listed tbh. The thing with dividends is its the only reason to invest because there is no market competition, normally high gearing would be used for growth but not here. Sorry but you haven't convinced me they should be privatised, listed or not.They all operate in the same regulatory environment so yes there is a lot of similarity, but...
UK Water Utilities: Why do we invest in one? | Fidante
The environmental failures of water utilities across the UK and the financial failure of Thames Water, has rightly led to increased scrutiny of the entire water sector. The sector was initially privatised by the Thatcher government in the late 1980’s, and Thames Water, now on the brink of going...www.fidante.com
So in this analysis they clearly do see a difference in the financial stability and performance of the listed compared to the unlisted.
Yes they all pay dividends - this in itself isn't an issue, its reasonable for an equity investor to earn returns on their investment. The issue has been with those companies gearing up specifically to pay dividends whilst underperforming on performance, and sending the company in question into meltdown.
The issue with sewerage spills is affecting all companies, its more to do with a lack of planning and regulatory oversight over the past 30 years than it is specifically to do with investor behaviour.
Soldato
- Joined
- 14 Jul 2005
- Posts
- 9,552
- Location
- Birmingham
Not sure I get your point here. The gearing increase has mostly been used to pay for capital investment which has been absolutely huge (many billions of £) over the past 20 years. Some (non-listed) companies have abused that alongside underperformance to pay dividends that weren't deserved.
Do you agree that where a company delivers good performance, invests in what it should, meets its regulatory commitments, that then a dividend of a few percent is a reasonable return for the equity investors? That's the model we have so obviously if you disagree with that completely then you'd prefer a not-for-profit or fully nationalised model.
Note Welsh Water is not-for-profit and Scottish Water is nationalised and both also have poor environmental performance, so that demonstrates its not the investment model that is the cause of this issue.
Last edited:
Yes I disagree with the model. Its a captive audience here with no competition.
Even those companies with good credit ratings still have borrowing costs higher than the government as well, adding needless extra costs on debt repayments.
Last edited:
Then tax polluters such as industry sectors to compensate,
It the company, regulator and government fault. All 3 are badly managed, and extracting wealth from the its citizens.
Soldato
- Joined
- 14 Jul 2005
- Posts
- 9,552
- Location
- Birmingham
Yeah well the government of the 80's wanted it off the taxpayers books didn't they, because of the huge amount of investment required to meet European drinking water and environmental obligations.
It's worth noting that before privatisation the water sector still wasn't run nationally, it was many hundreds of individual packets of infrastructure which were run by myriad of local authorities. In fact clean water supply was actually private for many parts of the UK already and had been since the 1800's, but wastewater was local authority run.
Political suicide if they agree to that.
Bidders demand Thames Water granted immunity over environmental crimes
Exclusive: ‘Ransom note’ requests would leave Environment Agency unable to prosecute company or management
www.theguardian.com
Lenders vying to take over Thames Water have demanded that the struggling company and its management be granted immunity from prosecution for serious environmental crimes as a condition of acquiring it, the Guardian can reveal.
Creditors want the environment secretary, Steve Reed, to grant the water company extraordinary clemency from a series of strict rules covering everything from sewage spills to failure to upgrade its water treatment works.
Last edited:
It’s political suicide but I can see why they are asking for it.
If you were refinancing Thames water, you’d want to put your people on the board and you wouldn’t want to be exposed to all that risk due to the complete mess the thing you are taking over is in.
Eg you don’t want to be the person holding the can because the regulator has finally woken up and started dealing with historic failures.
If you were refinancing Thames water, you’d want to put your people on the board and you wouldn’t want to be exposed to all that risk due to the complete mess the thing you are taking over is in.
Eg you don’t want to be the person holding the can because the regulator has finally woken up and started dealing with historic failures.
Isn't the solution to this to have the current board admit to all the failings, that way the new board wouldn't have any surprises come up?
Soldato
- Joined
- 11 Sep 2013
- Posts
- 12,800
For the 30-ish years preceeding, every time Labour was in power, the water services took a nose-dive. Every time the Cons were in charge, it perked up and became profitable again.
I'm not a fan of either party, but the Cons had generally been doing rather well as far as making reforms and keeping water decent. The degradation that saw the UK prosecuted was a result of Labour strategies. Thatcher only got hit with the repair bill.
It was also a matter of finding that amount of investment... something like £430 Billion in today's money, I understand.
That didn't start happening until about 15 years after privatisation.
Soldato
- Joined
- 13 May 2003
- Posts
- 9,261
But the opportunity existed, and has been taken by some. Without asking someone who really knows that industry I'm guessing it took a while for the consolidation of the privatisation shares to happen to the point where the likes of McQuarrie could buy the whole company and royally shaft it.
No because the legal entity is still the same, the liability is also assumed.
That amount of investment is spread out over decades and the government could have borrowed it (and serviced it via bills) at far lower rates than the private sector.
Ultimately any investment the private sector made was funded via bills, any profit they made, funded via bills, and of that profit paid as a dividend, funded via bills. Do you see where I am going here?
The private sector doesn’t spend money out of the goodness of its heart, all the money it invests is extracted via bills.
There is literally nothing the private sector has done the government couldn’t have also done at lower cost to the consumer because it doesn’t need to give a return to shareholders and it can borrow at a lower rate.
Ironically the public sector would have also led to more restraint over pay and bonuses to C suit execs also, particularly for poor performance.
Soldato
- Joined
- 14 Jul 2005
- Posts
- 9,552
- Location
- Birmingham
It may also have been incredibly inefficient, employing loads of time wasters who do little, falling foul of year on year strikes over pay holding the country to ransom, and having to pitch itself against competing expenditure pressures of other government departments.
At the end of the day it's not the fundamental model it's the intent, the capability of management, the regulation and legislation - those things are what makes something successful or not.
The EA & government dropped the ball on legislating for sewage treatment upgrades. The government / Ofwat dropped the ball on legislating against high gearing and dividend payouts (until it was too late).
And greedy private investors have taken over companies.
There's nothing wrong with the private model really you just have to control greed. Also have to control greed and corruption in governments too so it's no different really.
Soldato
- Joined
- 11 Sep 2013
- Posts
- 12,800
It was profitable from day 1 of privatisation.
The opportunity may have existed, but the regulator was supposed to stop it from going overboard.
The UK had already been prosecuted once, and was under pressure to raise its water services up to standard or get prosecuted again. They didn't have decades over which to drag their feet and fiddle around with cost profiling.
As opposed to being funded via taxes? Yeah, they never go up, do they...
Access to vast amounts of private capital?
There's also a massive difference between 'could have done' and 'would have done'. The government had a good 30+ years to address efficiency, investment, environmental and quality factors, and it did **** all. In fact, it made them all worse.
I worked on the privatisation of England’s water in 1989. It was an organised rip-off | Jonathan Portes
Taxpayers lost out, and consumers have paid through the nose ever since. This failed regime is long past its sell-by date, says economist Jonathan Portes
www.theguardian.com
"Here it’s worth engaging with an interesting but deeply self-contradictory defence of the sector by the head of the Centre for Policy Studies, Robert Colvile. He acknowledges upfront that the “water companies are essentially contractors. They are running the water network on behalf of the state, in a fashion agreed with the state, to targets laid down by the state.”
Indeed – so why should directors get million-pound salaries and bonuses? Why should shareholders and bondholders get returns far in excess of those we offer to investors in government debt? His answer to this is that the “single greatest justification for privatisation is competition for capital”; by which he means that if water companies were in the public sector, their investment would be in competition with other priorities, from HS2 to hospitals, and the result, inevitably, would be underinvestment.
It’s more credible than other defences of privatisation. It doesn’t claim some mythical gains from the magic of competitive markets. Nor is it an economic argument. From a rational perspective, there’s no reason why the government can’t invest as much as is justified by the underlying economics. Instead, Colvile’s argument is political. It implies that governments, especially but not only Conservative ones, pursue stupid, self-defeating policies for short-term political reasons, so it’s worth consumers massively overpaying the private sector to secure the level of investment that is required, even if the public sector could, in theory, do it more cheaply".
So the excuse for privatisation not working out is shareholder payouts and unscrupulous theft by private owners.... what's the excuse when government-owned services utterly fail to deliver?
Thames Water lenders offer £17 billion rescue deal in return for looser rules
The deal would also see “several billion” pounds’ worth of debt written off
www.independent.co.uk
I mean, what could go wrong....